If you’re a property trader, you may have an advantage when it comes to Stamp Duty exemptions. Let’s take a look at the requirements for Stamp Duty relief on probate property.
We will cover:
- How to get SDLT relief on a probate property
- Conditions to qualify for exemptions
Stamp Duty on probate property
Stamp duty can be quite expensive, often requiring developers to pay an additional 3% SDLT, but there are exemptions.
If you meet certain conditions, you won’t have to pay Stamp duty when purchasing probate properties.
You purchase probate property when you buy from personal representatives of deceased individuals.
These are some of the rules surrounding Stamp Duty relief for probate property:
- You must be a property trader and not a sole trader;
- The deceased person must have lived in the property as their primary or sole residence within the two years before their passing;
- The land area you acquire must not be larger than the permitted area of 10,000 square meters.
The exception rather than the rule
So what are the required conditions for a Stamp Duty exemption?
Let’s delve into the details of these regulations.
Definition of probate property
Firstly, keep in mind that residential property refers to any land and buildings that are used or suitable for use as a home or are being built or modified to become a home.
Additionally, any garden, grounds, buildings, structures, and associated interests or rights related to the property will also be treated as residential.
In simple terms, a dwelling is a building or part of a building that has the necessary facilities for everyday living, such as a bathroom, kitchen, and living room.
It should also provide enough privacy from neighboring dwellings.
Probate refers to the legal procedures involved in handling a deceased person’s estate and fulfilling their wishes as outlined in their will.
Since many estates often consist of property, such as the home of the deceased person, the term ‘probate property’ describes such situations.
Probate properties tend to have slightly different rules when it comes to Stamp Duty which are worth knowing as both a buyer and a seller.
When a building company or property trader purchases a home from an individual who is simultaneously buying a new home from them, the property acquired by the builder or trader is eligible for an SDLT exemption, provided that specific conditions are fulfilled.
Qualifying conditions to claim relief
The conditions to qualify for SDLT relief are:
➣ In the circumstance where you are actively involved in a business enterprise that entails the procurement of residential properties from personal representatives of deceased individuals within the United Kingdom, assuming the role of a property trader as part of your commercial operations, you fulfill the requisite condition to be eligible for claiming the Stamp Duty relief applicable to probate properties.
➣ In order to meet the prescribed criterion for Stamp Duty relief on probate properties within the jurisdiction of the United Kingdom, it’s incumbent upon the deceased individual, who was the rightful proprietor of the subject dwelling, to have resided therein as their primary or exclusive abode at any given juncture during the twenty-four months immediately preceding their demise.
➣ To maintain compliance with the specific prerequisites established for securing Stamp Duty relief in the context of probate properties, it’s imperative that the property trader adheres to a set of stringent conditions. Firstly, it’s imperative that the property trader refrains from surpassing the authorised threshold in terms of the amount earmarked for refurbishing the residential abode. Additionally, they must refrain from granting any form of lease or license pertaining to the aforementioned dwelling, as well as ensure that neither their principals nor employees, nor any individual connected to them, are permitted to occupy the premises. Lastly, it’s of utmost importance that the property trader abstains from acquiring any additional land that exceeds the designated perimeter specified by the relevant regulatory framework. By meticulously adhering to these multifaceted conditions, the property trader can successfully navigate the intricate landscape of Stamp Duty regulations and effectively avail the desired relief.
Let’s look into each condition in more detail:
The first condition is that you must be a property trader involved in buying and selling properties.
This requirement is relatively straightforward. If you’re a property trader pursuing a flip strategy, you qualify for the exemption.
A property trader is defined by HMRC as being:
either a company, an LLP, or a partnership whose partners are companies or LLP’s, and who carries on the business of buying and selling dwellings
The second condition relates to the person who lived in the property before they passed away.
To fulfill this rule, the deceased person must have resided in the property as their primary home within the past two years.
The third condition focuses on your planned use of the property and the budget allocated for renovation.
You can spend either a minimum of £10,000 or 5% of the purchase price, up to a maximum of £20,000, on refurbishing the property.
This is where it can become slightly complicated.
When purchasing a property, you might want to spend more than the permitted amount on refurbishment.
Often, this is necessary to bring the property up to modern safety standards.
If a property has been occupied for several decades, it may not meet current electrical and plumbing safety requirements.
However, it’s important to understand that the permitted development figure is specifically for development purposes, not for bringing the property up to modern standards.
To determine if you can qualify for the relief, you need to assess your budget carefully.
For example, if you plan to spend £30,000 to £40,000 on the property, you need to evaluate what the expenditure will be for.
Are you considering an extension that would exceed the permitted amount?
Unfortunately, if your planned spending exceeds the permitted development limit, you won’t be able to take advantage of this relief.
However, if, for example, out of the £30,000, you allocate approximately £20,000 to £25,000 for necessary safety improvements like rewiring, fixing trip hazards, removing dangerous trees from the garden, or addressing an unsafe bathroom, you can make a case that these expenses are primarily for safety reasons rather than solely for development purposes.
It’s crucial to document how you fit these criteria and justify your spending decisions.
By keeping records and showing how the expenses align with safety reasons, you can confidently evidence compliance with the third condition when questions arise later.
The final condition outlined here also relates to the permitted area of land, which is typically half a hectare or larger, depending on what is reasonable for a property of that size.
Once you’ve determined that you meet all the conditions and comply with the rules, you can claim the exemption.
Is partial Stamp Duty relief available for probate properties?
If the acquired land exceeds the permitted area specified in the exemption conditions, but the other two conditions are satisfied, it’s possible to claim partial relief.
However, it’s crucial to note that when partial relief is claimed, a portion of the consideration for the acquisition becomes subject to Stamp Duty.
This is the difference between the market value of the permitted area and the total market value of all the land.
So you will not be able to receive a full Stamp Duty exemption in this case.
Partial relief can also be revoked if the property trader surpasses the allowed refurbishment expenditure (up to £10,000), grants a lease or license for the dwelling, or permits their employees or principals to occupy the land.
If you fail to meet these conditions, you may become responsible for paying the full amount of SDLT without any relief.
Therefore, it’s essential to fully understand and comply to all the conditions to avoid any unexpected liabilities.
Find out if you’re eligible
Make sure to keep all evidence supporting your claim, as HMRC may investigate at their discretion.
Retaining evidence acts as a defence in case they raise questions about your compliance.
If you’ve followed the requirements correctly, the Stamp Duty cost should be lower, and you can proceed with your property purchase.
If you have any questions regarding Stamp Duty, contact us – we can help you make the most out of your property investments.
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Kind regards Ilyas